I apologize in advance for the slightly off topic rant, but:
Why, OH WHY, didn't they listen to me?
On September 15, 2008 I wrote:
The problem with a blanket policy of last-resort bailouts is it creates a culture of moral hazard. CEO's, management and local governments have little incentive to account for their own decisions if they know they will be bailed out by the big federal safety net.
Allowing Lehman to fail sends a signal to other companies: We're not here to save you from your mistakes.
To me that's good government policy.
Fannie Mae, Freddy Mac, AIG,...where do we stop? Now GM and American Express are standing in line with hands extended asking "Where's mine? We deserve help too."
Look, companies go bankrupt (Is anyone trying to help Circuit City, DHL, STARBUCKS for God's sake?!). It sucks. It's inconvenient. It's sad. I feel bad for the innocent employees who have to find new jobs. I feel for their kids. But badly run businesses have to fail for the system to work. If not, where is the incentive for good business decisions? Where is the incentive for producing products people want at lowest possible prices?
I'm willing to concede the need for liquidity in the financial markets. I don't like the idea of the government using your money to save financial companies from their own stupidity--What do you mean people are defaulting on loans that take up over half their income? Whodathunkit?--but stability in financial markets is valuable.
But stability in the auto industry at my expense? No thanks.
Hey, I have an idea...build a better car! You know, something someone would want to drive (and just to show you I'm doing my part, I drive a GM).
I'm also willing to concede that government caused much of this mess. But is it the government's job to save businesses from themselves? With money from people who make good decisions? I'm not buying.
At the risk of alienating myself from NASCAR fans everywhere, Allan Meltzer of Carnergie Mellon nails it:
...Meltzer believes potential failures or bankruptcies of GM and Ford would not be as catastrophic for the economy as some think, and JPMorgan Chase said today that GM may have enough capital to fend off bankruptcy anyway.
Foreign automakers would gladly step into any breach, he says.
"Don't you think somebody would pay for the General Motors name and factories? Of course they would," he says. "They might not pay the present price, but it's not worthless."
Bad companies fail. And they should. Because it gives someone else the incentive to do it better. And that's good for everyone.
